Don’t fall victim to the latest pension scam

If you’ve recently received an unsolicited text or phone call from a company offering to release your pension cash before retirement, there’s a good chance that someone is trying to scam you out of as much as half of your retirement fund.

Thousands of people have already been affected by so-called ‘pension liberation schemes’ and it’s estimated that as much as £400million has been ‘liberated’ from pension pots since 2008.

So, to help make sure you don’t add to that figure, here are some important questions and answers surrounding the grey area of unlocking your pension early.

Q. What is a pension liberation scheme?

A. Put simply, a pension liberation scheme is one that encourages you to take money from your pension before you reach the age of 55, which may seem like an appealing option if you’re struggling financially but have money locked away in a pension fund.

Q. How do these schemes work?

A. Introducers, or advisors, to the schemes send out thousands of text messages and make thousands of unsolicited calls that offer a way to ‘unlock’ or get ‘cashback’ from ‘frozen’ pension funds – these messages are designed to appeal to people in financial difficulty – even if they don’t have a pension in place.

If you respond, then an advisor will either suggest that you transfer the money from your pension into one of its investment schemes (which are usually risky and unregulated overseas investments) or take out a loan and secure it against your retirement fund.

Q. What’s the problem with releasing money that’s already yours?

A. Pension savings are only tax privileged so long as funds are not touched until the saver is at least 55, meaning that any early redemption will see HM Revenue and Customs (HMRC) take a significant cut. The Pensions Regulator suggests that that up to 70% of funds could go straight to the taxman.

Q. So what’s in it for those running the schemes?

A. On top of having HMRC take a chunk of your funds, the operators of these schemes will take a fee of between 10% and 20% of the amount that has been released or borrowed. The combination of this fee and taxman’s cut could see you shorn of around half of your retirement savings.

Q. What’s being done about this problem?

A. In order to try and ensure that no more people fall victim to this scam, the Pensions Regulator, working alongside the Financial Services Authority (FSA) and the Serious Fraud Office, has produced an awareness campaign. It carries a distinctive scorpion logo to warn people that these schemes come with a nasty sting in the tail.

The campaign includes detailed information, hosted on The Pensions Advisory Service website for anyone looking to understand the consequences of signing up to a scheme and a checklist for pension providers that outlines what to look out for.

Q. What should I do if I’m contacted by one of these schemes?

A. If you, or someone you know, has been contacted by someone offering to transfer your pension to another scheme then you should contact The Pensions Advisory Service on 0207 932 5791.

If you think you may have been a victim of this type of scam or you have any information regarding pension liberation fraud, then you should contact Action Fraud on 0300 123 2040.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.